The world’s largest crypto exchange Binance used the same lobbyists to pitch Washington lawmakers as its US affiliate, an arrangement that points to linkages between the two trading platforms that claim to operate separately.
Binance has insisted its US operation is independent from the wider group, which has been subject to a barrage of regulatory censures around the world. The offshore exchange, which has no formal headquarters and lets retail traders bet on crypto markets using complex financial products, says it does not serve US customers.
Binance Holdings, a Cayman Islands entity that acts as a holding company for the group’s vast offshore trading platform, and California-based exchange Binance US both used the lobbying services of law firm Hogan Lovells in Washington in late 2022, according to Congressional filings.
“An aligned lobbying strategy is perfectly legal, but Binance faces a unique problem of perception given the distance it claims exists between its global and US entities,” said Charley Cooper, managing director at blockchain firm R3.
Last year’s failure of rival exchange FTX has also renewed concerns over the corporate structures linking global crypto exchanges to their US entities after American clients were swept up in the offshore group’s bankruptcy.
According to disclosures, Hogan Lovells lobbied for both Binance Holdings and Binance US on cryptocurrency issues, and appointed the same individual staff members to lobby for both companies. Hogan Lovells worked on behalf of Binance US until the end of November, and then registered as a lobbyist for Binance Holdings the following day, the filings show.
Binance Holdings has long insisted its US affiliate licenses its technology but remains operationally independent, but the lobbying links between both entities appear to muddy this distinction. Binance Holdings, the parent company for the group’s main Binance.com trading platform, said since Changpeng Zhao, its founder and chief executive, is also the ultimate owner of its US wing, the decision to hire a lobbyist that had recently represented Binance US made sense.
“As Binance.com had never previously engaged in Washington DC, we sought government affairs consultants that understood both crypto and our CEO’s role in the industry. Given Hogan Lovells had previously supported Binance US, who shares our same ultimate beneficial owner, they were the best option,” the company said.
It added that the offshore exchange had “received several inquiries from congressional offices seeking our perspective” following the arrest of FTX founder Sam Bankman-Fried in December.
“Hogan Lovells has never provided overlapping government affairs services to the two organisations,” Hogan Lovells said. Binance US said there was no “dual representation” between both entities.
James Thurber, a professor at American University and the founder of the Center for Congressional and Presidential Studies, said based on the disclosures, it appears Binance and its US affiliate are “certainly co-ordinating their lobbying activities”.
The lobbying disclosures come at a time when Binance US is seeking to persuade authorities to approve its $1bn purchase of the assets of bankrupt crypto lender Voyager Digital. The US Securities and Exchange Commission has filed an objection to the deal, saying it had insufficient detail on the nature of Binance US’s business operations.
The US markets watchdog added it was not clear how the company would close the deal, or how it would guarantee the safety of customer assets. The influential Committee on Foreign Investment in the US is also examining the pact for potential security risks.
Regulators around the world have also criticised the wider group’s anti-money laundering and consumer protection policies. UK regulators said in 2021 Binance was not capable of being effectively supervised after its UK affiliate “failed” to respond to basic queries, making it impossible to oversee the group.
More recently US financial crime agency FinCEN named Binance as a counterparty to Bitzlato, whose founder was charged with conducting an unlicensed money transmitting business, which transferred over $700mn in illicit cryptocurrency. The group said it was committed to working with law enforcement.
“If I was Gary Gensler, I would be saying Binance has two choices: it can either be a US-regulated crypto exchange, or it can be a global player, but it can’t be both,” said Tom Keatinge, founding director of the Centre for Financial Crime and Security Studies at UK think-tank RUSI, referring to the chair of the SEC.
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January 31, 2023 at 06:54PM
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Binance offshore exchange tapped same Washington lobbyists as US affiliate - Financial Times
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